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GAO discussed the Department of Energy's (DOE) analysis of uncosted obligations made to contractors for goods and services not yet provided. GAO noted that DOE: (1) obligated about $17.6 billion to its contractors in fiscal year (FY) 1990, with $14 billion going to long-term management and operating contracts; (2) obligates contract funding at the beginning of each fiscal year, sometimes before developing specific programmatic plans for the funds; (3) had, at the end of FY 1991, about $9.7 billion in uncosted obligations, a $2.4 billion increase from FY 1989; (4) agrees with the Office of Management and Budget that analysis of uncosted obligations is important in ensuring appropriate program funding and use of carry-over funds; (5) had some uncosted obligations representing binding, contractual commitments, while other uncosted obligations appeared to result from project delays, terminations, and contingencies; (6) lacks an effective process, guidance or directives, experienced staff, and internal controls to ensure that units systematically analyze uncosted obligations during the budget formulation process; (7) field offices did not review uncosted obligations as part of the FY 1993 budget formulation process, citing staffing constraints and the potential unavailability of those funds for the next budget year; (8) does not receive or collect periodic commitment information for its uncosted obligations; and (9) has not defined operating fund commitments or a clear policy for determining how much prefinancing contractors should be allowed to maintain.

Recommendation for Executive Action

Status: Closed - Implemented

Comments: The DOE Acting Chief Financial Officer established new procedures requiring integrated M&O contractors to report on what portion of their uncosted obligations are encumbered, approved workscope, prefinancing, or unencumbered following DOE provided definitions of each category.

Recommendation: To correct shortcomings in the DOE analyses of uncosted obligations, the Secretary of Energy should direct the Chief Financial Officer to develop controls to ensure that analyses of uncosted obligations are performed as part of the DOE budget formulation process. This should include: (1) guidance to DOE units on the need for analyses of uncosted obligations and direction on how to perform the analyses; (2) policies defining operating fund commitments and setting forth the levels of funding for contractor prefinancing that DOE believes should be included in DOE budget requests; and (3) controls to ensure that analyses of uncosted obligations are performed DOE-wide.